Monday, February 24, 2014

SPY at New High...2.24.14

A solid rebound from Fridays OPEX has put SPY at new highs. 

With the market at these lofty levels its actually become harder to find pockets of opportunity to exploit although the VIX is till in the low 14s....meaning a further drop down to "normalized" 12 levels should produce a potential gain to SPY of approx. 15%...not impossible....the market is always full of surprises....but its unclear what would push the markets through the current overhead resistance levels.

The best odds now favor the DOW over either the Qs or SPY and if we do see a new bull trend one of the most likely big gainers may well be in the financial sector...XLF...which has so far failed to show much mojo and is due for a bump.

One of the sectors that has done very well recently is energy and here's a look at how my sister has played the sectors using M3.

First, we start with a simple one component run of M3 using SPY as a benchmark to establish a baseline.
We just save this file under a separate file name so it can be referred to relative to other others that do not include SPY in the mix.
Then we input the energy sector proxies using XLE, USO and UNG.  Our expectation is that the horrible weather the country has endured for the past few months will have goosed demand (and prices) relative to gains in SPY.
In this case we've used a top one sort without the AUTO STOP turned on.  There's a reason for this approach as we will see below.  Energy as a sector has clearly outperformed SPY on the 6 month basis but where it really gets interesting is on the more short term metrics:
Another way to play our expectations for energy strength is simply to go all in with a top 3 sort and just use the SHORT TERM ALERT chart and the equity chart's P6 to serve as a money management stop. 
This is the approach my sister has used since the first of the year and the results have been a surprisingly liner equity curve.